Bullish rotation fully supports further gains ahead | Exchange places with Tom Bowley

Well, we have now entered the last month of 2023. Are you having fun yet? I would argue that the bulls are having a blast and many stocks are skyrocketing this year. I love all the attention ‘The Magnificent Seven’ is getting. Stock market skeptics are always looking for the next big thing to crash the stock market, but rarely do any of them work. However, the popular word these days is ‘Magnificent 7’. Stocks cannot go higher because overall market strength is too weak. Anything. What do we want to see? Would you want the world’s largest, most influential and innovative company, which employs millions of people worldwide, to underperform? Would that make everyone feel better? 🙂

Bull markets are driven by leaders, and money pouring into relatively aggressive sectors is a bull market. I really hope the Magnificent 7 will lead the way. These stocks are all in some of the most aggressive areas of the market. It is a “risk-on” market environment in which these stocks are bought and outperform the rest of the market, which is the driving force behind the development of long-term bull markets.

When stock prices are falling, the overwhelming majority of market participants are afraid to buy because they think the price should fall further. When stock prices rise, the overwhelming majority of market participants say, “Don’t chase!” All my “beneath the surface signals” suggest that this rally has legs and is quite sustainable. When the market is falling, is it better to enter at a lower price? Of course, there are people who don’t want to buy something cheaper. But I would also argue that the development of a long-term bull market waits for no one. You are either on the train or you are not. EarningsBeats.com starts in June 2022. Until you learn to ignore the naysayers who never go away, your investments will be extremely disappointing and you will be setting yourself up for failure.

Instead of trying to call the top at every possible opportunity, Why not evaluate the power of progress?

Over the past five weeks, we have seen massive gains that have fully recovered all losses from the recent three-month market correction from July to October. However, a fast and exciting upswing is the hallmark of the development of a long-term bull market. During those developments, leaders can tell us a lot. So what is driving it? Let’s start with the sectors. Here’s how all 11 sectors performed since the October bottom:

• Real Estate (XLRE): +17.50%
• Skills (XLK): +15.18%
• Financials (XLF): +15.01%
• Consumer Discretionary (XLY): +14.37%
• Industrials (XLI): +12.75%
• S&P 500 ($SPX): +11.59%
• Material (XLB): +11.21%
• Telecommunication Services (XLC): +10.81%
• Utilities (XLU): 8.17%
• Healthcare (XLV): +7.06%
• Consumer Staples (XLP): 6.56%
• Energy (XLE): +0.46%

Look at that spin! Do you think the biggest names on Wall Street are abandoning their offensive positions and moving towards a more defensive direction? Frankly, the exact opposite happened. Most defensive sectors are at the bottom where relative selling has occurred. Of the five sectors that outperformed their benchmarks, rotation benefited four of the five aggressive sectors. sorry. That doesn’t seem likely to happen as another large bridge is on the verge of collapse. That’s not common sense.

Here is an RRG chart that shows this rotation more visually.

If you are concerned about XLK moving into the “bearish” quadrant, understand that leading sectors move into the bearish quadrant several times before returning to the leading quadrant. Here’s the same RRG, but this time with a tail length of up to 30 days (coinciding with the recent surge from the October low), so you can see how XLK has moved.

A month ago, XLK also moved from the lead into the bearish quadrant and then came back with a stronger lead than ever. Staying on the right side of this chart indicates that XLK is maintaining its relative strength overall. Since tech doesn’t typically perform well in December, I think it could see further weakness by touching down in the lagging quadrant before returning right back to the lead in January when the seasonal outlook becomes much brighter.

Speaking of seasonality, you can get a free copy of the S&P 500 Seasonal PDF by clicking here and signing up with your name and email address. It is 7 pages long and highlights the most important seasonal patterns that every trader/investor should know in the benchmark indices. If you don’t learn, you are losing ground to all the other traders who are learning. The second PDF in this two-part series is 70(!!!) pages long and provides historical trends for 16 major individual stocks, including the Magnificent 7, along with more seasonal details for the S&P 500. I used the information in Part 2 to execute one of the best trades of the year, the NVDA trade based on NVDA’s bullish seasonal pattern in November. Check out NVDA in action in November:

A reversal candle of price support technically set up this trade, but it was the knowledge of NVDA’s seasonal pre-earnings runs that gave me the confidence to make the biggest investment of 2023. Bowley Trend 2-part PDF has done me a favor. This is a series that confirms the technology outlook.

If you sign up for this two-part series, you’ll receive the following bonus: There is a small fee of $27 for the second part, but to provide more details and clarity, we will include an event on Monday, December 4th at 4:30 PM ET. We will discuss in detail the optimal trading timing for each of the 16 individual stocks. Let’s do a few more NVDA type transactions! This event is open to all EB members, including those who purchased Part 2 of the Bowley Trend series. We hope to see you!

Happy trading!

tom